Volume-Outcome and Its Impact on U.S. Health Care Markets

The direction of causality matters for policy. If volume causes outcome, then policies supporting centralization of procedures in a few facilities may make sense. Specialty hospitals may have the benefit of producing better outcomes. Antitrust analysis of hospital mergers should probably consider any improved outcomes when evaluating the impact of the merger.
While the presence of the correlation between hospital volume of a specific procedure and the outcomes for patients has been firmly established by the literature, causality is another matter. Accordingly we develop a volume outcome model suggesting that, for coronary artery bypass grafts (CABGs), a causative volume-outcome relationship exists. Consequently, for an increasing number of CABG surgeries, a better outcome will be the result.
A standard merger simulation as well as a simulation using data of a real merger shows that hospital mergers might have welfare enhancing effect as long as the benefits of the quality improvement outweigh the loss of welfare due to the price increase. If welfare implications are also taken into consideration, this defense will have a chance at success in antitrust trials.